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Entrepreneurship and innovation.

Introduction

According to the National Knowledge Commission (2008), Entrepreneurship is defined as the professional application of knowledge, skills and competencies and / or of monetizing a new idea, by an individual or a set of people by launching an enterprise de novo or diversifying from an existing one (distinct from seeking self employment as in a profession or trade), thus to pursue growth while generating wealth, employment and social good. As is well known the term "entrepreneurship" comes from the French verb "entreprendre" and the German word "unternehmen", both means to "undertake". The concept of entrepreneurship appears to have emerged around 1700's and since then, there had been many attempts at defining this term. Much discussions and analysis have taken place regarding the definition of entrepreneurship. However, it was due to the efforts of Professor Joseph Schumpeter that led to a scientific modern definition of entrepreneurship in the year 1942. According to him, entrepreneurship is the carrying out of new combinations called 'enterprise' and the individuals who carry them out are called as 'entrepreneurs'. Schumpeter(1942) put forward five basic combinations for entrepreneurship and these include:

(i) Introduction of a new product

(ii) Introduction of a new method of production

(iii) Opening of a new market

(iv) Conquest of a new source of supply and

(v) Carrying out a new organization of industry.

Management Guru Peter Drucker (1970) considered 'entrepreneurship' as a practice, meaning thereby that entrepreneurship is full of action from the time the entrepreneur established a new organization for a new business or activity. This entrepreneurial activity embodies three characteristics viz., risk taking, innovation and venturing into new business activities for profit. (NKC, 2008). British economists such as Adam Smith, David Ricardo, and John Stuart Mill briefly touched upon the concept of entrepreneurship, though they referred to it under the broad English term "business management. The works of Smith and Ricardo indicate that they did not give much importance to entrepreneurship. On the contrary John Stuart Mill considered entrepreneurship as of high significance for economic growth.

Bygrave and Hofer (1991) defined entrepreneurship as a process and described it as involving all the functions, activities, and actions associated with perceiving of opportunities and creation of organizations to pursue them. There are basically two types of entrepreneurship, viz., (1) Opportunity-based entrepreneurship--in which an entrepreneur perceives a business opportunity and chooses to pursue this as an active career choice and (2) Necessity-based entrepreneurship--in which an entrepreneur is left with no other viable option to earn a living, that is, here it is not the choice but compulsion, which makes him/her, choose entrepreneurship as a career. There is also another type of entrepreneurship, as in the case of a person who has been dissatisfied with working for others or a person or who has had negative work experiences and thus is more likely to be willing to tolerate the ambiguity that characterizes new ventures and thus becomes an entrepreneur. The characteristics of an entrepreneur can be outlines as:

(i) Foresight to assume uncertainty

(ii) Reacts to profit opportunities

(iii) Bears uncertainty

(iv) Brings about a balance between supplies & demands

(v) Has special alertness. That is, he has the capability of exploiting unnoticed opportunities. (vi) Has knowledge not available to everyone else, and this knowledge helps him towards creative discoveries.

It is of course known that everyone cannot be an entrepreneur and that only certain people have the ability to be so. These are persons, who by possessing certain characteristics of entrepreneur are able to bring about changes by introducing technological process and product. These are extraordinary persons with vision and great dreams, who are able to realize their dreams with consistent efforts and also subject themselves to considerable risks in the process. They have a dream, a vision and an impulse to fight. Another important factor they possess is the high level of motivation. While many qualities are required for an entrepreneur to remain on the top of business activities, unless he / she is motivated adequately, no progress could be made even if the company has the best of intellect, finances and other assets.. The various factors that facilitate entrepreneurship have been discussed time and again to briefly state, these are:

(i) Achievement motivation (McClelland, 1961)

(ii) Cultural factors that encourage entrepreneurship

(iii) Ability to exploit favourably the opportunity for improvement

(iv) Capacity to sustain a high degree of interest in technological development

(v) Ability to take risks and willingness to invest one's money and Effort

(vi) Ability to make the best of what one has

Creative Destruction, TRIZ and Entrepreneurship

Entrepreneurship involves Creative destruction, that is disruption and downfall that occur to certain industries and people, when a revolutionary new idea takes hold. A great example of this is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created one of the most important inventions of this century. Thus when something new comes up it tends to destroy the old things and this process is called creative destruction. In this, seemingly dominant companies may well find themselves antiquated companies of the past. Some of the innovation-generating creative destruction that may be obtained in an industry for example could be the new markets or products, new equipment, new sources of labor and raw materials, or even new methods of organization or management, methods of inventory management, and so on. Creative destruction is a powerful economic concept which explains the dynamics of industrial change, that is the transition from a competitive to monopolistic market, and back again to competitive market.

In his book Entrepreneurship: Texts, Cases, Notes, Robert C. Ronstadt (1985) indicated some of the traits that help entrepreneurs build thriving organizations, and he pointed out that creativity and the ability to tolerate ambiguous situations are the two most important characteristics needed for the same. Being creative enables entrepreneurs to more successfully manage businesses in new and ambiguous situations. It results in development of new materials and strategies for problem solving. Improvisation is a creative process and is also called extemporization, and can lead to the discovery of new ways to act, new patterns of thought and practices, or result in new structures. Creative techniques may be classified depending on the methods and means utilized, as for instance:

(i) Conditioning/motivating/organizing techniques

(ii) Randomization techniques

(iii) Focussing techniques

(iv) Systems altering techniques

(v) Pointed techniques

(vi) Evolution directed techniques

(vii) Innovation knowledge based techniques

The first technique involves procedures and special conditions that create an environment to facilitate removal of mental blocks and unleash the natural creativity. In randomization, the individual is forced to make more random attempts to solve a difficult problem, as for example brain storming which finally leads to a new and creative solution. In the third category, that is, the focusing technique, focusing is used to help the individual focus on one issue at a time and avoid frustration, as is done for example in attribute listing. Associated with it to an extent is the systems, the fourth category, which contains a set of focusing or steps to be followed in a specific order.

The next is the pointed techniques, which means that the individual follows a pre determined promising direction, which may be identified on the basis of experience, or intuition or knowledge acquired. In the next category, that is the innovation knowledge based technique, these are structured knowledge derived from the experience of the individuals especially the innovation experience. The basic advantages of this is that it leads to accumulation of the best practices in creative problem solving and the results are repeatable and do not depend on personal (psychological) issues. One such result is the TRIZ. (Altshuller's direction",1984 ). TRIZ (pronounced TREEZ) is the Russian acronym for the Theory of Inventive Problem Solving. It is an algorithmic approach to solving technical and technological problems which are "inventive". The main objective of TRIZ is to identify the most effective techniques covering all necessary compon-ents/issues, such as mobilization of personal capabilities, problem and system analysis, the innovation knowledge-base approach, etc. and integrate them into a single, powerful methodology capable of addressing any problem/situation. (Altshuller, 1984).

As a result of this integration, the following components form part of TRIZ: (a) Methods of reducing psychological inertia (b) Team work (c) Methods of collecting and organizing knowledge about a problem and the system in which it resides (Ideation's ISQ) ; (d) Functional analysis (enhanced and implemented in the technique of Problem Formulation) (e) Morphological approach (used to ensure the exhaustiveness of the ideas developed) (f) Evolutionary approach (Patterns/Lines of Technological Evolution) and (g) Innovation knowledge-base approach (various knowledge-base tools). Analytical tools are used to document and model problems in order to reveal directions in which to look for innovative solutions. Examples of analytical tools include questionnaires and problem formulation tools. Knowledge-base tools are used to synthesize solution concepts to inventive problems. They include the System of Operators (TRIZ principles, methods, and standard solutions), Innovative Illustration Library (examples of thought processes of great innovators) and the Innovation Guide (a compendium of physical, chemical and geometric effects).

Profile of an Entrepreneur

This can be considered in terms of psychological profiling, that is from the point of view of trait approach, and from that of cognitive approach. According to the trait approach, the entrepreneur must have traits such as higher need for achievement, have self as locus of control, be able to take risks, be innovative and creative, and must possess the trait of need for achievement. When the profile of the entrepreneur is considered in terms of cognitive approach, it is seen that instead of traits, the behaviour of the entrepreneur is given importance, such as the heuristics, schemas, special thinking and other abilities in a person. The profile of an entrepreneur can also be considered in terms of the context in which the person is operating. According to this approach, individuals are not distinct from their activities. They are part of and also create the systems within which they are situated. Hence the profile of the entrepreneur should include "what the entrepreneur does" (Gartner, 1988; Gartner et al., 2003). This view almost amounts to stating that Entrepreneurs are "made" and not "born" (Chell, 2001). Another way of profiling an entrepreneur is in terms of entrepreneur 'in action'. The entrepreneurship is a process, and not an attribute of a person (Stevenson and Jarillo, 1990). An individual is not always entrepreneurial, but when an opportunity arises, then he makes use of it. Such an approach is possible at any stage of the life cycle of a business enterprise.

While there are different approaches to work out the profile of an entrepreneur, it should be pointed out that which ever approach one may use, there are certain typical characteristic features which are to be part of any type of profiling. This includes factors mentioned earlier such as motivation, ability to spot opportunities, finding resources and so on. If all the above qualities are taken together and a person is rated on each of the above dimensions in addition to the approach used, one could get a meaningful and workable profile of an entrepreneur. While some may possess the above qualities, it is not always necessary that persons with such qualities would become a

successful entrepreneur. In order to become one, a large number of factors have to be considered, in addition to the factors mentioned earlier, one must also have the ability to take risk, not to be bothered by failures, develop a road map (plan) that will take the venture from the idea stage to a state of growth and institutionalization. Also the entrepreneur has to put together a team of talented, experienced individuals to help manage the new venture's operations, instead of working in isolation. Successful entrepreneurship depends also on access to capital, whether it be human, technological, or financial, in addition to depending on a liberal business environment that enables innovative people to implement their ideas. In short, successful entrepreneurship is a process that involves planning, implementation, and management as well as the cooperation of others in order to exploit an opportunity for profit. Based on these one wonders if it is possible to predict entrepreneurship; whether there are theories that could explain how entrepreneurship occurs and whether one could predict entrepreneurship in a person.

Theories of Entrepreneurship

According to the present day theory, an entrepreneur is one who is innovative. This theoretical position is not much to the acceptance of Kirzner (2000) who suggests that the process of innovation is actually of spontaneous "undeliberate learning". Thus, the necessary characteristics of the entrepreneur is alertness, and no intrinsic skills other than that of recognizing opportunities, are necessary. While some are of the view that there are special skills in a person that makes the person an entrepreneur, Leibenstein (1995) opines that an entrepreneur must be dominant, and be gap-filler, i.e. have the ability to perceive where market fails and to develop new goods or processes that the market demands but which are not currently being supplied. Thus, entrepreneurs must have the special ability to connect different markets and make up for market failures and deficiencies.

Though ideally an entrepreneur has to be innovative, it may not be possible in many situations, as for instance in the case of a developing or underdeveloped economy there is nothing new produced but imitation of the products supplied by other countries takes place as it is cheaper and does not involve any special capital or investment. In Marshall's analysis (1920), (one of the older theories of entrepreneurship) as mentioned by Burnett (2000) a successful entrepreneur is one who produces for the market as a merchant as well as is able to see fresh opportunities for supplying new and different goods or services that either will meet the demand or improve the plan of producing. Furthermore, according to this theory, (the Marshallian analysis), the firms have to organize their production and marketing functions in an evolving economy, that is, in an environment of uncertainty which may include:

(i) Lack of knowledge about the pattern of consumer preferences and also the technologies available to meet their preferences.

(ii) Lack of ability to anticipate the actions of rivals;

(iii) Inability to develop techniques to respond to changes in consumer preferences and

(iv) The emergence of new technologies or new entrant firms, which threaten the existence of the present ventures.

The next theory is the Discovery Theory which is characterized by the idea that entrepreneurial opportunities exist independent of the perceptions of entrepreneurs, just waiting to be discovered. In contrast, Creative Theory holds that these opportunities are created by the actions of entrepreneurs. Led by Sharon A. Alvarez and Jay B. Barney (2002, 2004) of the Fisher College of Business at Ohio State University, researchers explored these two theories of entrepreneurship and their implications for the actions of entrepreneurs. They stated that these two theories are complementary and can be applied effectively to the entrepreneurial activities. However, these theories also generate different predictions as to when specific actions will be more effective in enabling entrepreneurs to form these opportunities. When entrepreneurs operate in a discovery context, a variety of specific actions are likely to be relatively more effective and when they operate in a creative context, a different set of entrepreneurial actions are likely to be more effective. For example, when exploring the entrepreneurial action of leadership, in a discovery context it would be best for the entrepreneur to depend on his own expertise and experience for providing leadership. However, if operating within a creative context, it would be better for the entrepreneur to lead, based on his charisma. Both these theories are important to explain and predict entrepreneurship.

Another theory is the knowledge spillover theory of entrepreneurship by Acs Zoltan, Audretsch, Braunerhjelm, and Carlsson (2006) According to the proponents of this theory, entrepreneurship is an endogenous response (Sandri, 2007) to investments in knowledge made by firms and non-private organizations that do not fully commercialize those new ideas, thus generating opportunities for entrepreneurs. In the knowledge spillover theory, the attributes of the individual are considered constant and the focus of this theory is on the variations in the context. It emphasizes how the knowledge context will impact the cognitive process underlying the entrepreneurial choice model. The result is a theory of endogenous entrepreneurship where (knowledge) workers respond to opportunities generated by new knowledge by starting a new firm. The theoretical position is that the entrepreneurs are not necessarily made, bur are rather a response to high knowledge contexts that are especially fertile in spawning entrepreneurial opportunities. (Agarwal et al., 2008).

Innovation and Entrepreneurship

In the earlier sections, creativity and its importance for entrepreneurship have been spelt out. Many consider creativity and innovation to mean the same, but there is a host of difference between the two terms. The nature and definition of creativity is broad, complex and multi-faceted. Creativity can take many forms and can be found within a variety of contexts. It is embodied by individuals with a broad range of personal characteristics and backgrounds. Creativity is the confluence of three components, viz., Knowledge, creative thinking and motivation. A creative idea when put to fruition is innovation. Innovation could be thought of as harnessing the creative energy and moving those great new ideas through a defined set of processes to an ultimately valuable conclusion. A person may have the creativity trait but until that idea is put to action, it does not become an innovation. Thus an entrepreneur not only has an idea but puts it to action implementing his ideas in the business thereby establishing the entrepreneurship qualities within himself.

Innovation means a new way of doing something and may refer to incremental, radical, and revolutionary changes in thinking, products, processes, or organizations. Invention is different from innovation, in that it is an idea made manifest, whereas in innovation, an idea is applied successfully (Mckeown, 2008). In the case of an entrepreneur, the product or item he has invented will also substantially differ from the existing one. The goal of innovation is positive change and those who are directly responsible for application of the innovation are often called pioneers in their field. Furthermore, unless the innovations are aligned with the company's goals the impact of innovation will not be felt. As pointed out by Suzanne Taylor and Schroeder (2003), innovation should be such that it should also cut costs and maximise productivity. In recent years, globalization has spurred the phenomenon of "mass innovation bringing about rapid and disruptive changes in companies and has resulted in democratization of innovation. In the process it is releasing untapped energies of people that could solve world's most difficult problems. Younger and smaller companies are leveraging on innovative breakthroughs, to create wealth and find newer solutions. According to George Day(2007), companies can avoid lackluster growth by better understanding the risks inherent in different levels of innovation and achieving a balance between--using two terms he has coined--BIG I innovation and small i innovation.

An entrepreneur has to find a balance between the 'BIG I' and the 'small i' as many organizations may not be able to sustain 'BIG I' targets. In some areas they could use 'BIG I' and in some areas 'small i'. In the last couple of years, one has seen how these concepts of 'BIG I' and 'small i' together have been used effectively in countries like China whose industries have been envied in the West more for their tenacity than their ingenuity. The Chinese have established a multi-year framework to become more innovative and, therefore, competitive. So has Singapore. Finland has merged its top business school, design school and technology school to create a multi-disciplinary "University of innovation". George Day and Paul J.H. Schoemaker (2008) are of the view that for some companies, the economic crisis can actually provide an innovation platform. In addition to having brilliant technology and manpower, they feel that it is important to have competent management on the business side which will help develop the best model for fostering innovation. For this, an entrepreneur is required who can give up old fashioned, linear approaches that rely on outdated methodology and address the company's growth gap, work out many models of exploration thus venturing into hitherto unexplored areas that would reap greater benefits. Such an entrepreneur would not also be worried too much about the risks involved or failures that may arise in the process.

In recent years, some entrepreneurs have considered outsourcing innovation itself, the trend which is in product development and is called "Open Innovation," known also as "crowd sourcing,". It entails collaborating with partners to solve business problems. Innovation to be successful has to be disruptive in that it should not only bring in new but destroy the old. This can be seen in the information overload, which according to Kim 1997 a, 1997b) is an incredible opportunity to innovate disruptively. Knowledge is being created at a far faster rate than any one human can ever hope to assimilate. However every individual filters out vast stores of data and takes only that which is relevant and meaningful to the task on hand. At the same time, innovations are not limited to those involving high-end technology alone. Any new idea that generates commercial value is by itself the spur for a new Entrepreneur to plan a venture. Innovation and Entrepreneurship is a two-way relationship. The innovator innovates and gives an idea and the entrepreneur implements the idea into a commercial proposition. An Entrepreneurial culture drives creation of wealth from knowledge and provides for further innovation. Entrepreneurship in turn helps generate new ideas for the economy, and creates a culture of independence, risk taking and confidence, more so amongst the emerging educational groups.

Conclusion

To conclude, Innovation and entrepreneurship are two sides of a coin. While there is a need for the innovations to occur which should be facilitated and even encouraged deliberately by entrepreneurs, it is equally important for them to create opportunities and environment to realize those innovations. There is no single, but a combination of factors such as market opportunity, family background in entrepreneurship, a new idea with business potential, the prospect of challenge offered by Entrepreneurship, as well as long cherished dreams and desire, that lead to successful entrepreneurship.

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Author:Veeraraghavan, Vimala
Publication:Asia-Pacific Business Review
Date:Jan 1, 2009
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